Today it was announced that the government of China tightened up on lending by increasing the reserve requirements of banks.
Stocks fell in most of the world and in the United States.
And yet we should be celebrating that the Chinese government, unlike the American government, has at least a vague sense of sound capitalist economics. We really don't want the Chinese economy to overheat and then crash. We want to see sustainable growth. Even with that goal, we would expect to see more cyclic activity than is desirable.
China has become the engine of the world economy. Just as Great Britain was in the 19th century and the U.S.A. was in the 20th century. What is good for China is good for the world. China is one of the largest national markets for many of the stocks I own or follow like Marvell Technologies (MRVL) and Microchip (MCHP). Even my biotechnology companies are selling rapidly increasing volumes of their products to Chinese end markets.
The rest of the world, particularly the United States, needs to catch up to China in this cycle. It helps us if China taps the breaks a bit. We need to improve our competitiveness and absorb our own excess capacity.
Selling stock because China tightens its credit policies, this early in a recovery cycle, is just stupid.
Professionals on Wall Street may have a lot of competitive advantages over individual investors, but on the whole they are a narrow-minded, stupid and cowardly lot. It's hard to match the top 10% of Wall Street guys, but beating the average is not very tough if you do your homework, analyse situations carefully, and don't get emotional.
Choosing individual stocks is still where the competitive advantage is for smaller investors. It does not take very much research to know more about a particular company than most brokers and professional traders. You can even beat computerized trading programs simply by taking a long view; they aren't programmed to understand companies or markets, they seldom trade well on time frames of over a week.
Markets should be cheering the Chinese government. Investors should be pressuring the Federal Reserve to raise interest rates to a defined point like 0.25% or $0.50% to signal that credit generation will not be allowed to get out of hand in this cycle, the way it was in the last two cycles.